A termination clause is a portion of a contract that explains the rights of the parties to terminate, or cancel, their contract.
Termination clauses are commonly found in:
- Employment Contracts – where either party may be allowed to terminate the contract by giving notice. Such clauses may also give the employer the ability to terminate an employee immediately under certain circumstances. This is referred to as “at-will” employment.
- Property Leases – another form of termination clause, also known as an escape clause, is when a tenant reserves the right to terminate a lease prior to its completion.
An early termination clause may penalize one of the contracting parties if they terminate the contract too early. Early termination clauses are often found in use agreements, such as automobile leases and cellular phone contracts. Such clauses usually impose fees for terminating an agreement prior to a specified date.
Termination for convenience clauses are often found in construction contracts, and they grant the owner the ability to terminate a contract at their own convenience, even when the contractor did nothing wrong. Such clauses also limit the amount that a contractor may recover if the contractor sues for breach of contract. Termination for convenience clauses first appeared in government contracts, but many private contracts are beginning to include them as well.
If you are drafting a contract with a termination clause, a commercial or business lawyer can help you write an agreement that protects your interests and legal rights. If you are involved in a breach of contract lawsuit, a business lawyer will advise you of your rights and legal defenses.